10-K: United States Natural Gas Fund, LP Reports Annual Results for 2024

The United States Natural Gas Fund, LP (UNG) releases its 10-K filing, detailing its performance and financial condition for the year ended December 31, 2024, including a NAV decrease and strategies for managing market volatility.

Summary

• The United States Natural Gas Fund, LP (UNG) is a commodity pool that aims to reflect the daily percentage changes in the price of natural gas delivered at the Henry Hub, Louisiana.
• UNG's investment objective is to have the daily changes in its per share net asset value (NAV) closely track the daily changes in the price of a specified short-term futures contract, known as the Benchmark Futures Contract.
• For the 30-valuation days ended December 31, 2024, the average daily change in the Benchmark Futures Contract was 0.878%, while the average daily change in the per share NAV of UNG over the same time period was 0.890%.
• UNG's per share NAV began the year at $20.36 and ended the year at $16.85 on December 31, 2024, a decrease of approximately (17.24)% over the year.
• As of December 31, 2024, UNG had 44,146,103 shares outstanding.
• UNG invests primarily in Natural Gas Futures Contracts and, to a lesser extent, in Other Natural Gas-Related Investments.
• UNG is subject to regulatory oversight by the SEC and CFTC, including accountability levels and position limits set by exchanges like the NYMEX and ICE Futures.
• UNG may invest in OTC swaps to meet its investment objective, which involves credit risk with counterparties.
• UNG does not expect to make cash distributions and intends to reinvest any realized gains.
• On January 23, 2024, UNG effected a 1-for-4 reverse share split.

Sentiment

Score: 5

Explanation: The document presents a balanced view, highlighting both positive aspects (outperformance of benchmark) and negative aspects (NAV decrease, regulatory risks) without overly optimistic or pessimistic language.

Positives

• UNG's actual total return outperformed its benchmark by 5.22% for the year ended December 31, 2024.
• Average interest rates earned on short-term investments held by UNG, including cash, cash equivalents and Treasuries, were higher during the year ended December 31, 2024, compared to the year ended December 31, 2023.
• UNG has a policy of requiring review of the credit standing of each broker or counterparty with which it conducts business.

Negatives

• UNG's per share NAV decreased by approximately (17.24)% during 2024, ending the year at $16.85.
• UNG exceeded accountability levels of the NYMEX during the year ended December 31, 2024, when it held a maximum of 46,054 natural gas Futures NG contracts, exceeding both the any and all month limits.
• UNG may invest in OTC swaps to meet its investment objective, which involves credit risk with counterparties.
• UNG does not expect to make cash distributions and intends to reinvest any realized gains.

Risks

• Fluctuations in natural gas prices could materially adversely affect an investment in UNGs shares.
• Natural forces in the natural gas futures market known as backwardation and contango may increase UNGs tracking error and/or negatively impact total return.
• Accountability levels, position limits, and daily price fluctuation limits set by the exchanges have the potential to cause tracking error.
• Risk mitigation measures imposed by UNGs FCMs have the potential to cause tracking error.
• UNG will be subject to credit risk with respect to counterparties to OTC contracts entered into by UNG.
• Valuing OTC derivatives may be less certain than actively traded financial instruments.
• UNGs rights under an OTC contract may be restricted by regulations.
• UNG is not leveraged, but it could become leveraged if it had insufficient assets to completely meet its margin or collateral requirements relating to its investments.
• Certain of UNGs investments could be illiquid, which could cause large losses to investors at any time or from time to time.
• Due to the increased use of technologies, intentional and unintentional cyber-attacks pose operational and information security risks.
• UNGs investment returns could be negatively affected by climate change and greenhouse gas restrictions.

Future Outlook

UNG intends to continue pursuing its investment objective by remaining invested as fully as possible in Futures Contracts or Other Natural Gas-Related Investments.

Industry Context

The announcement provides insights into the performance of a specific commodity pool (UNG) within the broader context of the natural gas market, influenced by factors such as supply and demand, geopolitical events, and regulatory changes.

Comparison to Industry Standards

• The document does not provide a direct comparison to industry standards.
• However, it does mention other related public funds managed by USCF, such as USO, USL, UGA, UNL, and BNO, which could be considered as benchmarks for comparison.
• The document also references the NYMEX and ICE Futures exchanges, which set accountability levels and position limits that influence UNGs investment strategy.
• The document does not provide specific details on the performance of these comparable entities, making a direct comparison challenging.

Legal Proceedings

• UNG and USCF were named as defendants in an action filed by Optimum Strategies Fund I, LP, a purported investor in call option contracts on USO (the Optimum Strategies Action).
• On November 8, 2021, USCF and USO announced a resolution with each of the SEC and the CFTC relating to matters set forth in certain Wells Notices issued by the staffs of each of the SEC and CFTC.
• USCF, USO, John P. Love, and Stuart P. Crumbaugh were named as defendants in a putative class action filed by purported shareholder Robert Lucas (the Lucas Class Action).
• Purported shareholder Momo Wang filed a putative class action complaint, individually and on behalf of others similarly situated, against defendants USO, USCF, John P. Love, Stuart P. Crumbaugh, Nicholas D. Gerber, Andrew F Ngim, Robert L. Nguyen, Peter M. Robinson, Gordon L. Ellis, Malcolm R. Fobes, III, ABN Amro, BNP Paribas Securities Corp., Citadel Securities LLC, Citigroup Global Markets Inc., Credit Suisse Securities USA LLC, Deutsche Bank Securities Inc., Goldman Sachs & Company, JP Morgan Securities Inc., Merrill Lynch Professional Clearing Corp., Morgan Stanley & Company Inc., Nomura Securities International Inc., RBC Capital Markets LLC, SG Americas Securities LLC, UBS Securities LLC, and Virtu Financial BD LLC, in the U.S. District Court for the Northern District of California as Civil Action No. 3:20-cv-4596 (the Wang Class Action).
• Purported shareholder Darshan Mehan filed a derivative action on behalf of nominal defendant USO, against defendants USCF, John P. Love, Stuart P. Crumbaugh, Nicholas D. Gerber, Andrew F Ngim, Robert L. Nguyen, Peter M. Robinson, Gordon L. Ellis, and Malcolm R. Fobes, III (the Mehan Action).
• Purported shareholders Michael Cantrell and AML Pharm. Inc. DBA Golden International filed two separate derivative actions on behalf of nominal defendant USO, against defendants USCF, John P. Love, Stuart P. Crumbaugh, Andrew F Ngim, Gordon L. Ellis, Malcolm R. Fobes, III, Nicholas D. Gerber, Robert L. Nguyen, and Peter M. Robinson in the U.S. District Court for the Southern District of New York at Civil Action No. 1:20-cv-06974 (the Cantrell Action) and Civil Action No. 1:20-cv-06981 (the AML Action), respectively.

Related Party Transactions

• USCF is paid a management fee calculated as a percentage of UNGs total net assets.
• USCF pays the fees of the Marketing Agent as well as BNY Mellons fees for performing administrative, custodial, and transfer agency services.
• UNG and the Related Public Funds, other than BNO, USCI and CPER, pay a licensing fee to the NYMEX.
• UNG also pays the fees and expenses associated with its tax accounting and reporting requirements.
• UNG also pays a portion of the fees and expenses of the independent directors of USCF.

Stakeholder Impact

• Shareholders are subject to the risks associated with investing in natural gas futures contracts, including market volatility and potential losses.
• Authorized Participants are the only entities that can create and redeem shares directly with UNG, and their actions can impact the liquidity and market price of the shares.
• The performance of UNG impacts the returns of its shareholders, and its ability to track its benchmark affects its usefulness as a hedging tool.
• USCF, as the general partner, has a fiduciary duty to manage UNG in the best interests of its shareholders.

Key Dates